Tuesday, 12 May 2009

There has been chatter of late in the iPhone developer forums that I frequent regarding the prolifation of crap applications (crapplications, or simply crapps) in the App Store and that the App Store model encourages this. Could this really be true?

Like many others, I have a full-time job and just develop iPhone applications in my spare time. But that does not mean it costs nothing to develop my applications. On the contrary - my spare time is very valuable to me - but how do I quantify it? If you assume that I did some other work, say contract work, over that time then the opportunity cost of this lost income can be determined.

With this in mind, I decided to examine one of my applications, Magnetic Block Puzzle to see what the cost of developing it was and what sort of sales I would need to achieve to break even in a reasonable period of time.

Magnetic Block Puzzle deconstructed

I estimate that it took around 200 - 300 hours to develop, from start to release-ready code. In order to calculate an opportunity cost for this time, I need to determine an hourly rate. Conservatively I am using a rate of £30 per hour. That equates to an opportunity cost of £6,000 to £9,000. For the rest of this exercise, I will use the average of £7,500 (about $11,500). Expenses incurred in developing the application have been ignored.

So, how many sales are required to break even?

Tier

Price ($)

Price (£)

Pre-tax profit (£)

Req sales

Tier 1

0.99

0.59

0.36

20,833

Tier 2

1.99

1.19

0.72

10,417

Tier 3

2.99

1.79

1.09

6,881

Tier 4

3.99

2.39

1.45

5,172

Tier 5

4.99

2.99

1.82

4,121

Tier 6

5.99

3.49

2.12

3,538

Tier 7

6.99

3.99

2.43

3,086

Tier 8

7.99

4.99

3.04

2,467

Tier 9

8.99

5.49

3.34

2,246

Tier 10

9.99

5.99

3.65

2,055

I need to sell 10,417 copies at its current price of £1.19 ($1.99) just to break even! How many sales are required then, per day to break even in six months?

Tier

Price ($)

Price (£)

Pre-tax profit (£)

Req sales per day

Tier 1

0.99

0.59

0.36

114

Tier 2

1.99

1.19

0.72

57

Tier 3

2.99

1.79

1.09

38

Tier 4

3.99

2.39

1.45

28

Tier 5

4.99

2.99

1.82

23

Tier 6

5.99

3.49

2.12

19

Tier 7

6.99

3.99

2.43

17

Tier 8

7.99

4.99

3.04

13

Tier 9

8.99

5.49

3.34

12

Tier 10

9.99

5.99

3.65

11

57 copies a day at the current price doesn't sound too bad until you consider that it needs to maintain this level for six months and that on its best sales day it hasn't come close to this amount. It's looking unlikely that I will break even on this any time soon, if ever.

What are the options then? Raising the price requires fewer sales to break even, but raising the price will result in a decrease in sales too, so this is unlikely to help.

Perhaps lowering the price to 59p ($0.99) will help boost sales? It probably will, but at that price the required number of sales to break even shoots up to 20,833 or 114 a day for six months.

The only other option is to lower the development cost. In other words, spend less time developing it in the first place. Too late for this application, but valuable information to take to the next one. Knocking off 10% or 20% is not going to change the situation much. The decrease needs to be significant (say, an order of magnitude). Putting 20 - 30 hours of effort into building an application means an opportunity cost of around £750, which can more realistically be recouped through App Store sales in an acceptable period of time. But what can be built in 20 - 30 hours? Ah, a crapplication.

Pricing

The above logic of course assumes that a crapplication will sell as well as something that took ten times longer to develop. Unfortunately, the history of the App Store leads me to believe that you are no more certain to sell something good than you are to sell something crap. If it appeals to the masses, it will probably sell, irrespective of how bad or how good it might be (this is the best example of the former).

A popular story that is quoted is the developer that decided to see what could be built in an hour; came up with Sound Grenade in 20 minutes and landed up cracking the App Store top 10 with it.

The blessed / dreaded charts

To break even many sales are required at a low price, or fewer sales at a higher price. In pre-App Store days people would happily pay £5 to £10 ($7 to $15), or even more for a mobile application. Ringtones and images were confined to the price brackets below this. The App Store has changed everything. Customers now expect to be able to buy just about anything for 59p ($0.99). It wasn't always like this - I remember the first few apps on the App Store being more costly. Didn't I purchase Super Monkey Ball and Enigmo for £5.99 ($9.99) each? Yes, I did. What happened?

This slide can arguably be attributed to the App Store charts. The charts are just based on downloads, irrespective of cost. So, a £5.99 ($10.00) application would need 10 times the turnover in order to compete with a 59p ($0.99) application in the charts. Of course, this is a losing battle. Surely charts should take the price into consideration? As it stands, it has clearly become a volume game.

Getting a spot in the App Store charts is essential for every developer. The charts tend to be self-perpetuating. Once an application is in there, it is noticed by more people and therefore downloaded more, boosting its position in the charts, leading to even more people noticing it and so on.

It seems then that developers have little choice but to charge 59p ($0.99) or £1.19 ($1.99), or at a push £1.79 ($2.99) and hope they crack the charts. If they don't, the application is quickly confined to the abyss of unnoticed applications (AUA), picking up the odd few sales here and there, but ultimately not very many.

Summary

It would seem that the best return on investment is to spend as little time as possible building an app, try to give it mass appeal and price it at tier 1 (59p or $0.99). Perhaps then building iPhone software with the aim of making money is viable.

If like me you have spent a significant amount of time building applications, for very little reward, console yourself with the fact that many of us are in the same boat. Let the enjoyment of building the application be your reward and the sales (if there are any) be a nice bonus.

I think the answer lies not in trying to cut costs/ development time, but in increasing the top line. Have you got a "lite" version out there ? Do you have a business model to earn through "ads" ? What is your marketing strategy for the product ?

Maybe investing a bit more there actually would show you bigger returns than trying to be more efficient in developing the application.

@Prashant - yes, there is a lite version, which is intended to entice people to buy the full version. I am not looking to earn revenue through ads at this point as I dislike them; however I haven't ruled it out.

Marketing iPhone apps is a tricky topic. Spending money on advertising is not really an option for me at this point. From the research I've done, investing a small amount in advertising generally has no real impact. Investing a large amount is too risky.